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Strong outlook for London residential lettings market

In Greater London average residential rents increased by 16% in 2010 and demand from overseas corporate clients is on the increase, the research found. It also shows that rents in East London have already risen by 4.3% in the first three months of this year and by 3.6% in North London.

These increases mean that rental values in St Johns Wood and Regents Park are now 15% above the peak prices of 2007.

The report points out that the cost of entering the property ladder in London for first time buyers is preventing many doing so and they are opting to rent instead. On top of this a dearth of rental stock is pushing up rents and the future prospects for rental growth are very strong.

The city’s prime rental market is also seeing strong price growth. Average prime London rents increased by 3.4% in the first quarter of the year and are up almost 12% year on year. This growth shows no signs of slowing and outpaces the 2.8% growth seen in property values, the report adds.

‘This value dynamic will push out yields and attract investor interest, and there is clear evidence that investor buyers are already emerging from the shadows,’ said Yolande Barnes, head of Savills residential research.

Central London rents are traditionally driven by demand from corporate tenants from overseas which focuses on the high value prime areas and which has been on the increase since the recovery in the financial and business services sector in 2009, the report also shows.
Price growth has been particularly pronounced in locations where renewed City confidence has translated into boosted demand for good rental property, both from domestic and international tenants.
This has especially benefited prime East London such as Wapping and Canary Wharf, with rents up 4.3% in the quarter and 13.4% year on year and North London areas such as Islington and Hampstead where an uplift of 3.6% in the quarter and 16.1% year on year has left values some 15% above their former peak levels.  Much of this growth is due in no small part to low levels of good prime stock.

Prime central London values have also risen, but less sharply.  Average values rose by 2.9% in the quarter and by just under 6% last year and are 4.5% below peak levels, with the exception of St John’s Wood and Regent’s Park.

Overall, Savills market strength indicator for the prime London rental market remains positive as constrained supply will continue to be an issue and more investor landlords have been seen bringing new investment properties to the rental market, which will boost prime central London stock levels in key locations such as Mayfair.

The highest rental growth this year is expected in prime southwest London such as Fulham, Putney, Wandsworth, and Richmond, as stock levels here are particularly low and demand high.

‘High rent rises are not confined to the prime market and, as more aspiring buyers are frozen out of home ownership, demand for private rented stock in the country as a whole can only grow. Our prognosis for the private rented sector as a whole remains extremely bullish,’ said Barnes.

‘ We don't foresee that stock levels in the rentals market are going to change due to a continued demand from overseas tenants. We may see slightly more stock come to the market as those landlords who aren't living here full time choose to rent out their properties,’ said Jane Ingram, head of lettings at Savills.